FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, October 27, 1997

• 1532

[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I would like to call the meeting to order and welcome everyone back. As you know, the finance committee is holding its pre-budget consultation pursuant to Standing Order 83.1.

We have criss-crossed the country and received input from literally hundreds of thousands of Canadians. We have received some quite interesting proposals, and I'm sure this afternoon will be no different as we hear from a number of individuals.

We will begin with the Canadian Centre for Philanthropy, Mr. Patrick Johnston, president and CEO. Welcome, Mr. Johnston.

Mr. Patrick Johnston (President and CEO, Canadian Centre for Philanthropy): Thank you very much, Mr. Chair. I want to express our appreciation for the invitation to be here once again. We met with the committee just about a year ago, although I see some new faces on the committee. We want to express our appreciation for being here and wish you well.

I have left with the clerk a fairly brief submission as well as a one-page summary of the speaking points I will address. I will keep this quite brief.

First we would like to simply express our appreciation for the number of significant measures that have appeared in the last three federal budgets that really will encourage more Canadians, or at least some Canadians, to give more to charitable organizations. We're not unaware of the significance of a number of these measures. We also want to thank you. It's often the case that organizations that come before you perhaps appear to be ungrateful, but in this instance I do want to say thank you. We are appreciative and grateful.

There are, however, two pieces of unfinished business from the federal budget of February 1997 and I will speak to them briefly. The first has to do with resolution 21.

I understand and believe you have heard about this issue at other hearings and that other witnesses have spoken to you about it. We also want to express our serious reservations about resolution 21. I think you have heard enough, and there are people around the table who can provide more detail about the substance of that resolution. We simply want to add our voice, speaking on behalf of the Canadian Centre for Philanthropy, to express our serious reservations and concern about that measure. We are proposing and would ask the committee to seriously consider recommending the withdrawal of resolution 21.

• 1535

The second point of unfinished business coming from the February 1997 budget relates to the measure a number of us were supportive of, and that's the reduction of capital gains tax on gifts of appreciated property. However, in the February budget a kind of sunset clause was included. That measure will expire in five years, but before it expires there is an express desire in the budget that there be an analysis of whether or not that measure resulted in increased gifts, and whether or not the increased giving was equitable and spread equally across the whole of the charitable sector.

At this point, however, there appear to be a number of questions about exactly how that measure will be evaluated. How will we know whether or not there has been an increase in giving? How will we know whether or not it has been equitably spread through the whole of the charitable sector?

We believe it is important for this issue to be clarified. The charitable and volunteer sector needs to know as well how that test will be administered, who will be responsible, and how we will find out about it. So we hope the committee will also give serious consideration to clarifying the issue in terms of the sunset clause with that specific provision.

While we are very appreciative of the measures that have appeared in recent and previous budgets, we do want to encourage the committee to consider additional enhancements, particularly enhancements that would be beneficial to modest-income donors.

Most of the measures in the previous budgets, at the end of the day, will be of primary benefit to higher-income Canadians. I don't know about you, but relatively few people I know are able to give to charitable organizations each year 20% of their annual income, let alone 75% of their annual income.

So that measure is really, in a sense, a paper benefit to modest-income donors. It really benefits primarily upper-income Canadians. We are appreciative of those measures; however, we believe there are large numbers of modest-income taxpayers, modest-income donors, who with more encouragement would be providing even more funding and donations to charitable organizations.

An idea that I believe has been mentioned to you in this set of hearings, and that was presented in the past, is referred to as the stretch incentive. This is an idea that appeared in several submissions to the committee last year. In fact, there was some positive support given to it in this committee's report from last year. The concept is really quite a simple one. It would really provide additional tax assistance for people who stretched their giving to give more to charitable organizations than they had given in the past.

We understand there were some technical problems and some reservations that Finance and Revenue Canada had with that specific measure. We're quite open to discussing with Revenue Canada and Finance officials how we might address some of those problems. But we do believe it is important that there be additional enhancements that will be of benefit to modest-income donors.

In closing, I would just like to add that in our view increased incentives for modest-income donors will speak directly to several of the issues the committee members have been asked to address. We believe they represent an important strategic investment that can really be a win-win situation to the extent that additional enhancements and tax incentives for modest-income donors will leverage more personal giving. That means more money will go into community organizations across the country, and increased spending will also translate into more jobs and more employment in communities right across the country.

In closing, we would simply like to encourage the committee to once again consider additional enhancements that will benefit modest-income donors, in particular.

The Chairman: Thank you, Mr. Johnston.

We'll now move to the representative from the Community Foundations of Canada, Ms. Monica Patten, executive director. Welcome.

• 1540

Ms. Monica Patten (Executive Director, Community Foundations of Canada): Thank you. It's a pleasure to be here. Thank you for the invitation.

I thought I would start by telling you a bit about community foundations. First of all, I will inform you that there are 80 community foundations, found in large and small cities across this country, all sharing in common the role of building endowment funds with funds raised from charitable donors, engaging in broad grant making to a very wide range of activities, and providing leadership in various ways to their local communities. Over $800 million was collectively invested in endowment funds in 1996, the interest of which translated into $45 million in grants to over 2,000 charities. Well over 2,000 volunteers contributed their skills and energy to leading community foundations, and many thousands of donors made very generous financial contributions.

Community foundations have benefited from recent changes to tax incentives for donors. We join with others in the sector in expressing appreciation for those changes which have been introduced in the last few years. For example, I am aware of at least $10 million in new gifts made during the last few weeks alone because of the capital gains provision introduced last year. I know of several more that will be forthcoming. Such large gifts from Canadians who are enjoying prosperity and have high asset levels must continue to be encouraged. At the same time, community foundations share with others in the charitable sector the desire to attract a broader base of donors, including those who have more modest levels of income.

In the face of the significant government cutbacks, which have hurt the charitable and voluntary sector and thereby have hurt great numbers of Canadians, it is more important than ever that charitable donations be encouraged. As I said earlier, we are appreciative of the measures that have been introduced to do just that. But we urge you to withdraw budget resolution 21, which was introduced as part of the 1997 budget, a resolution that is a major deterrent to the gift of private shares—often a source of wealth to donors. The introduction of incentives to encourage increased giving by donors of moderate income is the other proposal we recommend you consider implementing.

We at Community Foundations of Canada join with our colleagues in this sector, including those with whom we participate in the Voluntary Sector Roundtable, in asking that you seriously and quickly move to address these two requests. We offer our technical expertise as you do so, and we look forward to building on the relationships we have already established with the Department of Finance and Revenue Canada to advance this work.

I would like to address in another way some of the key questions the committee has posed. All the charitable donations our sector might well receive will not compensate for the impact of government cuts; the cuts we have all experienced in the last few years. The flood of applications to community foundations from charitable organizations has increased dramatically throughout the 1990s and is evidence of the efforts needed just to maintain—not improve but simply maintain—a quality of life in all our communities. We urge that the balance of support through funding must be restored through program and infrastructure support to organizations that provide service, through direct program service and support to children and families and marginalized and newcomers and our environment and so on and so forth, and through ensuring that Canada's safety net is firmly secure for all Canadians.

Our sector, the charitable voluntary sector of which community foundations are a vibrant part, can play a helpful role in addressing the issues of today and securing a promising future for all Canadians. We can and do provide leadership in mobilizing communities to tackle problems. We can raise funds for community needs. We can provide jobs, internships, mentorships, exchanges, and training and skill development opportunities for young Canadians. Indeed, we are poised to do all these things.

But we can't do them alone. We need to be partners with you and with the private sector. We need to find ways to meet and talk regularly with policy-makers. We need added tax incentives so we can encourage charitable giving. We need infrastructure support, so we can do our part in training and employing Canada's workforce. If these opportunities are given to us, to the voluntary charitable sector, then we will be able to play a part in building social capital, the skills and the trust and the commitments and the knowledge that will lead us into a prosperous new millennium.

• 1545

I ask that you recommend to the minister a budget that increases tax incentives for charitable giving; restores cuts to programs that all Canadians hold dear; and introduces measures that facilitate the capacity of the voluntary sector, already a significant player and employer in engaging Canadians who seek to acquire the skills and knowledge that we all recognize are our future.

Thank you for the opportunity to express these views.

The Chairman: Thank you very much, Ms. Patten.

Now we move to the representatives from the Canadian Association of Gift Planners, and board director David Boyd-Thomas. Welcome.

Mr. David Boyd-Thomas (Board Director, Canadian Association of Gift Planners): Thank you very much, Mr. Chair and members of the Standing Committee on Finance of the House of Commons.

Our association now comprises over 700 charitable gift planners from across Canada, working either for charities or in what we call our allied professions of estate and tax law—in terms of the life insurers, folks who are offering annuities, and also accountants—which deal with Canadians making charitable gifts to charities throughout Canada. Our association is just celebrating its fifth anniversary. It's a young organization, but it has worked with and made presentations to this committee over the past two years. We are particularly pleased to continually be invited to be a partner in this process of developing new and increased incentives in legislation in order that all Canadians benefit.

As has been mentioned already by the first two witnesses and as you have heard across the country, we are here this afternoon to raise an issue that we feel has been somewhat detrimental—and I'm understating that perhaps—to our work and to Canadians. In particular, this is what was tabled as resolution 21 in the February 18, 1997, federal budget. It has subsequently been re-put before the House of Commons as the draft legislation for the amendments to the Income Tax Act that were issued on July 31 of this summer by the Department of Finance.

In discussions after the budget came out, the Canadian Association of Gift Planners has been working with this committee in the past, but also with representatives of the Department of Finance with respect to resolution 21 and subsequently to the amendments as now tabled. Our position has been that we are fundamentally opposed to this provision in the sense that it proposes an inequitable system of tax treatment for charitable gifts by Canadians to Canadian charities, for the benefit of all Canadians and for the many purposes that my colleague from the Community Foundations of Canada has just illustrated to you. In particular, we are talking about the restrictions that prohibit gifts of the privately held shares and assets of Canadians—and Canadian entrepreneurs in particular, who have built up their wealth in Canada, thereby doing many good things for the economy, but who just happen to hold their assets in privately held shares and securities.

Presently, if these Canadians wish to make a charitable gift to support any of the registered charities in this country, they are prohibited from doing so by the provisions put forward by the Department of Finance. This is definitely not fair or equitable for donations from Canadians who hold publicly traded securities and who are enjoying new and certainly, as we applaud them, benefits for charitable gifts in terms of the reduction in the capital gains inclusion rate.

Again, we see the proposition as dangerous in that it proposes a two-tier system of recognition for charitable gifts. I cannot underline how important we feel this issue is for all of our membership across the country, with whom we have been communicating over the past summer.

We have been consulting with charities across the country. The effect of the changes is one of, as a colleague in the profession has coined it, “donor paralysis”. Major, substantial gifts are being held in a state of paralysis, if you will, because their advisers cannot advise them to go forward with these proposed gifts.

We have seen the effect of this at the United Way of Greater Toronto. A $200,000 gift to create an endowed fund for human resources service agencies in the city of Toronto was put on hold. Indeed, I have just learned—last week, I believe, as a deputation was made by the United Way of Greater Toronto—that it has been completely cancelled at this point.

In Alberta, there is the instance of the University of Calgary. A donor has withdrawn a gift to endow a chair in the humanities for the University of Calgary.

A major private charitable foundation in Toronto is currently faced with curbing its grants to smaller charities, which is its mandate: supporting smaller charities that would not normally receive support from donors. It, too, is facing problems because the gentleman behind that foundation, the man who established it many years ago, is now prevented from adding further assets to his foundation in order to make those gifts.

• 1550

As you can see, we are beginning to see more and more instances of this in our practice across the country, and we strongly urge this committee to consider putting into their report a recommendation to withdraw this provision as presented by the Department of Finance and, if possible, to relay it for further consultation with the sector.

I will end by saying that we are aware from our discussions with the department of some of the rationales behind the inclusion of this provision. It is because there had been perceived abuses within the charitable sector with respect to a very small number of gifts that had come to the attention of the Government of Canada.

We in the charitable sector fully—and we also govern ourselves through self-practice in terms of standards of ethics and performance and practice and evaluation of ourselves—support the government in terms of policing ourselves. To this effect, we do pledge to work with the Department of Finance and any other branch of the government, and indeed the legislators, to assist in coming up with fair and equitable measures to govern these practices.

With that, I shall end. Thank you.

The Chairman: Thank you very much, Mr. Boyd-Thomas.

Now we have the representatives from the War Amps, Mr. Cliff Chadderton, chief executive officer, and Brian Forbes, solicitor. Welcome.

Mr. H. Clifford Chadderton (Chief Executive Officer, The War Amputations of Canada): Thank you, Mr. Chair and hon. members. Naturally we appreciate this invitation, and we are really going to make some comments more or less from the broad perspective of a time-honoured, if I may say that, charitable organization.

I should explain that the first communication I received asked us to comment on the process of deficit reduction and priorities, and I had prepared a briefing note on that and then took off for Winnipeg. When I got back this morning, there was a communication from your committee, which in my mind seemed to change the objective a little bit, and our views were being sought on the prudence factors for the 1998 budget, changes in the tax system and job opportunities.

Of course we're quite prepared to enter into any discussion on those objectives, but I would first like the opportunity of reviewing quickly the notes that I had prepared under what I thought was the original mandate.

So I would point out that the War Amps, in the process of deficit reduction and setting of government priorities, I think can speak from the history and experience concerning the economic structure of Canada and from the viewpoint of an organization that has been very active for a period of more than 50 years.

The other point I want to make very clear is that our expressions of opinion may not apply to other Canadian charities, because we are in a somewhat different category. First, we have a very distinct focus, and that is to provide assistance to three groups of amputees: the war amputees; the civilian amputees—that's civilians of over 18 but from causes other than war; and third, child amputees.

Concerning this government policy of deficit reduction, it certainly has had some effect on the operation of our organization, because our principle has always been that our programs and our services are designed to meet the needs of Canadian amputees, which are not normally provided by any level of government. Thus, in our experience, recent reductions from the point of view of federal financing and provincial financing—and sometimes even at the municipal level—have resulted in an increased demand on our services. I would have to say that we're prepared to accept this, and we have also gone to considerable length to explain our position to the public. If our balance sheet tells a story, the public seems to agree.

The public seems to agree that where there is a gap—or if the government moves out—it can be filled by a charitable organization, and certainly the public donations to our organization have indicated they have no objection to putting money into the hands of an organization that is filling that gap.

• 1555

Within our orbit of responsibility, as I call it, we could comment on whether the federal government should be vigilant as to the impact of its expenditure policies that affect the health of Canadians. That of course is a very important point. It's in front of all us today. We see some of it.

Sometimes we feel that the government cuts, regardless of which level of government, are hurting, but on the other hand we have seen a measure of what you might almost call abuse or misunderstanding, and consequently from our viewpoint the government cuts have to be accepted. Some of them are digging into what you might call misinformation, waste.

Of course, the bottom line is that most charities, the ones I'm associated with, are dealing with the disadvantaged and the people who are vulnerable to government decisions, and somehow we have to strike a balance between what government should be providing by way of funding and what charities should be providing by way of funding.

My last point is that presumably no one could effectively complain where the priorities were being implemented to reduce waste or overlapping or to increase efficiencies. We certainly fully agree that the government must seek a balanced budget, but in the long run it would be our judgment that if the budget is balanced, certainly our organization, and I think many charities, are going to find that the public will be in a better position to respond to appeals from charitable organizations.

If I could just add one other note, which is not specifically on the agenda but is one on which I think people would expect me to speak, I have another hat, which is to monitor what's happening within government in connection with Veterans Affairs Canada. On the cost containment provisions that Veterans Affairs Canada has instituted, I'll just review them very quickly.

First, they have all been done in consultation with veterans organizations.

The pharmacy review project indicated that many veterans were being led up the garden path. They were being overmedicated, they were being given drugs they didn't need. So Veterans Affairs had to step in and say, just a minute, if you're entitled to it and you need it, fine, but there is some overlapping or misuse.

The same with dental care: it was out of control. Vision care was out of control.

So all the veterans organizations had to deal with Veterans Affairs Canada and say, yes, we agree, it is out of control; yes, we agree that certain cuts are absolutely essential. But we also took the opportunity to point out that you can't cut them too close to the bone.

Believe it or not, footwear... I'd like to put in front of this committee an example of what really happens. A doctor would give a prescription and some veteran with a foot problem would go down and buy a $300 pair of Adidas. That kind of abuse has been cut out by DVA, but we saw it and we certainly agreed that it had to be cut out.

On the question of special equipment, power lift chairs, all those types of things...

Finally, the last post fund—and it's a good place for it to be, because as you know, the last post fund handles burials. The abuses were absolutely enormous. Veterans Affairs consulted with the veterans organizations and said we have to bring some sense to this. So this all came out of not specifically any resolutions that have been referred to here, but they certainly came out with the government's attempt to balance the budget.

I can speak for just two groups, the war amputees of the country and the veterans of the country, and I can say that, so far anyway, no one has been hurt. A lot of what you might call abuse or spending more than was necessary has been cut down, but I don't think anyone has been hurt.

• 1600

The Chairman: Thank you very much, Mr. Chadderton.

We'll now move to the United Way representatives, the president, David Armour. Welcome.

Mr. David Armour (President, United Way of Canada): Thank you very much. It's great to be back with this committee this year. It's quite exciting to be here a few years in a row and to be heard each year and to see changes and improvements. I think it really marks the recognition by the federal government of the vital role the voluntary sector plays in society and how much of a change we're all going through.

We are literally rewriting the delicate social contract of who's doing what—of what's the role of government, what's the role of the voluntary sector, what's the role of the private sector, what's the role of organized labour in building democratic society, in building caring communities, and in fact moving towards social justice, which is what we're all aimed at. We see, as I'm sure you do, that the voter is the taxpayer, is the donor, is the volunteer, and that we are in fact all working for the Canadian community.

It's great to be here. I speak to you as the senior staff of United Way of Canada, a network of 122 local, autonomous United Ways that in each community look at the needs of the community, pool the resources, raise funds, and fund health and social services in the voluntary sector.

I also speak to you as a member of the Voluntary Sector Roundtable. It's an organization that has made presentations here in the past and is really a virtual organization of 10 national coalitions, including the Canadian Centre for Philanthropy, Community Foundations of Canada, United Way of Canada, and other organization aimed at increasing discussions with the federal government.

In response to the two sets of questions that came out, I'd say first of all that we have no comment on the issue of paying down the debt versus spending on programs. However, if there is spending on programs available, we would strongly request that the government look at restating and in fact adding funding to a number of programs.

We speak to you as a co-funder, not as a recipient of funds. With the $260 million that we raise nationwide, we fund 4,000 member agencies and an additional 10,000 organizations through donor-directed giving, and we speak to you as a co-funder of those organizations.

Funding is needed in many organizations, certainly in the sector that we work in, in voluntary health and social services, but as a member of the Voluntary Sector Roundtable I'd say in all sectors where the voluntary sector is working in times of dramatic change to assist local Canadians in building more caring communities and in meeting their responsibilities.

The second area I'd say in terms of funding was that you assist us by continuing to commit the resources necessary to Revenue Canada to work with us as we explore the evolving accountability of the sector. We, as you know, have created a new panel, the whole group of the Voluntary Sector Roundtable on accountability and governance, chaired by Ed Broadbent.

For us, it's not about more policing or more regulation, but really looking at evolving accountability in evolving times, and ensuring that transparency and accountability to the public, to the donors, and to volunteers is there, and that we are able to do that in partnership with Revenue Canada.

On the question of strategic investments and the tax system, I would add to and absolutely comment on the last two comments that you've heard already from a number of people. One is to encourage philanthropy from private corporations in any way possible, and one way a number of us, as you've already heard, are suggesting would be to withdraw for further consideration resolution 21.

The second way is to introduce the stretch credit proposal that the group of us proposed last year. We understand there are concerns about that, and certainly administrative implementation concerns around that proposal, but we would seek ways of meeting and looking at how to overcome those, or in fact how to design another proposal that meets the same ends and the same needs.

The third, if I can sneak in a third one, would be absolutely to continue to look for ways of enhancing modest gifts from modest donors. It's important to enhance giving at all levels. Yes, it can be expensive for the federal government in terms of forgone tax revenue, but as much as we can enhance the average donor to increase their average gift, we will see much greater participation of Canadians in the voluntary sector.

For us the issue of increasing our capacity to deal with the change is very important, so we approach the issue of enhanced charitable tax credits from the issue of capacity. What can the federal government do in addition to direct funding of parts of the sector to increase our capacity?

• 1605

On the last point, the question around what government can do to help ensure there is a wide range of job opportunities in the economy for new Canadians, I'd say clearly and emphatically, do not forget the voluntary sector. We're a major part of the economy; we're a major part of the workforce; and we're a major part, potentially, of job creation.

When the federal government is looking at job creation in the private sector and in the government sector, when you're looking at training, at research, at technology and jobs, don't forget the voluntary sector. We can be a very strong part. Just as we play partnership in the community with organized labour, business, small business and government, we can do the same thing in terms of job creation.

I know over the next year a number of organizations will be coming to the federal government with specific proposals on job creation, but I'd simply say that in any area where you're looking at job creation, don't make it one sector versus another; include all sectors.

Thank you very much.

The Chairman: Thank you, Mr. Armour.

Now we will move to the Conference for Advanced Life Underwriters, Mr. William J. Strain, chair. Welcome.

Mr. William J. Strain (Chair, Taxation, Conference for Advanced Life Underwriters): Thank you, Mr. Chair. Good afternoon, everyone. It's a pleasure to be here.

The Conference for Advanced Life Underwriting is a conference of the Life Underwriters Association of Canada. LUAC is a non-profit association that was formed in 1906 and has established a very comprehensive professional development program and ethics program for its 17,500 members across Canada. Those members are engaged in the sale and service of life and health insurance, annuities, pension plans, registered retirement savings plans and RRIFs.

CALU, the Conference for Advanced Life Underwriting, was formed in 1991 to provide services to LUAC members who practise in the areas of offering personal financial planning, business succession planning and estate planning services to their clients, many of whom are owners of family businesses, many of whom are shareholders in private companies. CALU members work closely with their clients and public charities and private charitable foundations in arranging for and financing and funding their philanthropic activities.

It is in that capacity that we come today to lend our voice in support of those who have expressed concern, particularly about the impacts of resolution 21. It's due in large measure, I think, to the efforts of this committee that the government has adapted initiatives in the 1996 and 1997 budgets to encourage charitable giving by all Canadians. These initiatives certainly are welcomed and appreciated by the charitable community and by CALU members.

However, the anti-avoidance provisions that were proposed in the 1997 budget resolution 21 and now revised in draft legislation that was released by the government on July 31 stand in stark contrast to those initiatives. Those provisions, if enacted, will effectively choke off virtually all charitable donations of private companies' securities. We believe the new rules will seriously hamper the ability of both public charities and private charitable foundations to raise capital that is so desperately needed to establish and sustain long-term social and cultural programs that benefit all Canadians.

We, too, understand the government's purpose in introducing the anti-avoidance legislation, and they will, if enacted in their present form, deny all tax relief for donations of private companies' securities to both public charities and private charitable foundations where the donor is a shareholder of the corporation and does not deal at arm's length with the company. In addition, they will be punitive in many situations by virtue of a very substantial tax liability that will be imposed on the donor who decides to give securities to charity. But to effectively deny any tax relief for donations where charities hold securities of private companies that don't deal at arm's length with the donor, regardless of the quality of the investment and the value of the investment, we believe, is an extreme overreaction to the risk of possible abuse.

To give you an example of how that might impact, and in contrast to the provisions that were introduced with regard to public company shares, we've included with the material we've left with the committee today a short example that shows the contrast in the treatment. When members have a chance to look at it, they will see that in the example I provide, which deals with the donation of a share that is valued at $1 million and costs the donor $0.5 million, if that share is in a private company and is gifted to a charity, whether public or private, the donor will face a tax liability of just under $200,000. In sharp contrast to that, if that shareholder were a shareholder of a public company and gifted the public company shares, the donor would be the recipient of tax relief of just over $400,000—a huge difference.

• 1610

We believe a credible valuation process is the key to alleviating concerns about providing tax relief for charitable gifts of shares of private companies. To that end, in cooperation with the Voluntary Sector Roundtable, the Canadian Association of Gift Planners, and various other organizations, we have proposed to the Department of Finance a four-point valuation process that we believe will provide the adequate safeguards that the government needs to ensure that the tax credits are given only for real value that is transferred to charitable organizations by the donors. The Canadian Institute of Business Valuators has reviewed these proposals and endorses them, and it has made those views known also to the Department of Finance.

The charitable sector needs to build a capital base that can produce a stable and predictable income flow to sustain its programs over the long haul. Long-term investments in securities of private companies that, directly or indirectly, through their shareholders, have shown a commitment to that particular charity are an ideal funding instrument for that kind of purpose. We urge the committee to recommend to the Minister of Finance that the proposed anti-avoidance rules in resolution 21 and subsequent be rescinded.

Thank you, Mr. Chair.

The Chairman: Thank you very much, Mr. Strain.

Now we'll move to the final presentation of the day by Mr. Drache, who is from Drache, Burke-Robertson, Buchmayer.

Welcome, sir.

Mr. Arthur Drache (Q.C., Drache, Burke-Robertson, Buchmayer): Thank you, Mr. Chairman. I should say I'm also representing the charity subsection of the Canadian Bar Association, who asked me some weeks ago to make a submission to this committee.

I have to concur with just about everything I've heard so far today with regard to resolution 21. I come to it from perhaps a unique perspective in that when I was with the Department of Finance, I drafted the original legislation dealing with the taxation of charities. I don't want anybody here to think these problems were just invented. We looked at the issue of what have now come to be known as loan-backs, we looked at the issue of private company shares, we looked at the question of whether we should have non-qualified investments, and things of that nature.

We looked at all this stuff at the time—we're talking about 1975-76—and the decision at the time was that the most important thing was that there be a flow of income (a) to the charity, and (b) from the charity to recipients. That is why we developed the so-called distribution quota, which creates a formula under which a minimum amount of income each year must go out from the charities to the charitable works. And that is why, in due course, we put in section 189, which said that where you have basically private company shares or debt that go into a charity, whether it be a private or public foundation, there must be a minimum payment from the company issuing the shares or the debt to the foundation.

My own view is that nothing has changed except that suddenly the Department of Finance, without any consultation whatsoever, has decided the test is on the capital side. You just don't want the capital there. I personally think this approach is destructive to the charities community, especially those looking for major gifts. I suggest to this committee that the more logical approach is perhaps to take another look at the existing section 189, which requires certain levels of payment to the holders of non-arm's length debt, private company shares and debt, and maybe beef it up to increase it if you're concerned that there's too little going in.

• 1615

Wolfe Goodman, one of the most distinguished lawyers in this country, from the Toronto firm of Goodman and Carr, put together a very detailed proposal on this and sent it to the Department of Finance. He got back a brusque letter, very much a sort of form letter, saying, thank you, but we don't want to listen to you. That so far has been the reaction most of us have had in dealing with the Department of Finance—polite, but they don't want to hear anything.

Aside and apart from the fact that I think resolution 21 is wrong in principle, if we work on the assumption that it's going to stay there anyway there are at least two things that have to be taken a look at, as far as I'm concerned. The first is the question of holding companies. A vast amount of the holdings in public companies are in fact held through private companies.

Recently I've been dealing with an individual whose intention it is to make a very large gift, by any measure. He owns 27% of the shares in a listed public company on the Toronto Stock Exchange. All of these shares are held in a private company. This is the way public company shares are held. That happens to be a fact of life. He suddenly finds that though de facto he wants to give public company shares, because they're held in his holding company he has a major problem; he can't do it. So I think this is something that has to be addressed.

The other thing, which Bill Strain alluded to and which is, to call a spade a spade, absolutely outrageous, is that you say we make a gift; we don't get a deduction unless the gift is disposed of within five years; and then if it isn't disposed of within five years—and it's something that is now beyond my control as a donor—I'm going to pay capital gains tax on it.

I happen to think that this is absolutely outrageous. At the very least, if I'm not going to get a deduction, please change the rules so that I'm not going to get hit with a capital gains tax in respect of something that I've given away. But that is exactly the way the draft legislation we now have before us is drawn.

I'd like to touch very briefly on a couple of other points. I concur with those voices around the table that said we have to do something for the small donor. I always thought stretch credit was a good idea. The explanations given by Finance and Revenue that it was too hard to administer and so on had no credibility with me at all. I mean, if you want to do it, you do it. That's all there is to it. Don't say it's too difficult.

If they're worrying about game playing—i.e., people are not going to give anything for x years and then make the big gift—that's really the charities' problem. If the charities are prepared to take that risk, it seems to me the government should be prepared to share that risk.

Every year before tax time, when somebody says a husband and wife should pool their donations and only one of them should claim it so that you have only one threshold amount, nobody jumps up and says that's outrageous. It's just the way it is.

So the objections to the stretch credit that have filtered out of Finance and Revenue are not very convincing as far as I'm concerned, as somebody who actually dealt with this kind of stuff in the past, the drafting and so on.

I do have a one-page paper, which I delivered to the clerk. There are four technical issues that I want to mention, one point at a time.

First, withholding tax on gifts to charities out of RRSPs and RRIFs should be withdrawn. This point was brought to the committee's attention last year.

I think there should be a formal prescribed discount rate for charitable remainder trusts and annuities as a matter of simplicity. This matter was brought to the committee's attention last year.

• 1620

I think the legislation should be amended to allow public foundations to issue charitable gift annuities. There is a technical problem. I think the legislation should be amended.

One that has not been raised before but that I feel fairly strongly about is that appeals about charitable status, including de-registration, should be heard by the Tax Court of Canada. At present the first appeal goes to the Federal Court of Appeal. It's impossible to run an appeal against either a refusal to register or a de-registration unless you have between $50,000 and $100,000 in your war chest to fight that case, whereas everybody else has the right to a case before the tax court. It's something this committee might take a look at.

The only other point is a matter of some history, but it's a subject close to my heart. I think in this country we need a review of what organizations get preferred tax status. That review was promised by Finance Minister Benson in the 1971 budget. It's 26 years now and nothing has happened. Maybe it's time for somebody to take another look at that particular issue.

The Chairman: Thank you very much, Mr. Drache.

Now we will move to the question and answer session, starting with Mr. Harris.

Mr. Dick Harris (Prince George—Bulkley Valley, Ref.): Thank you, Mr. Chairman, and thank you, presenters, for your very well-delivered presentations today. They were very understandable.

I have one question. I just want to make a comment first, though.

I'm really a big fan of volunteerism and fund-raising out there in the private sector. I think charity organizations have a huge role to play in the communities, particularly now that the government has had to draw back so much to get its own house in order. I know many of my colleagues have worked with charity organizations and still do, and they realize the value of them. I believe the government's role is that it has a responsibility to provide an environment that will encourage and enhance charitable giving by way of tax incentives and also by way of giving friendly regulations.

Today you all talked about pretty well the same recommendations for the charity program. If the government were to take a lot of your recommendations and implement them, dealing with resolution 21, the better tax incentive for modest givers, etc., how would you describe the opportunities that would suddenly appear as far as your organization and your ability to raise money go? Would it be as if a whole new world of opportunity was opened to you to increase your funding? Would it be that dramatic if the government were to take a few of the steps you have talked about today?

The Chairman: Mr. Armour, from the United Way.

Mr. Armour: Since you have contexted your comments relative to the government cuts...I think the cuts from all levels are so dramatic that we are not talking about making up for government cuts, we are really talking about increasing the capacity of the sector and helping the sector do a better job. Quite simply, as is said in the Jewish tradition, if one life is saved, it's as if we have saved the whole world. Every bit we can do will help. Every additional donor we can encourage, every additional volunteer who will get involved because of greater accountability, will help.

Each of these measures, certainly the measure to increase average donors... If we were to come up with a dramatic measure to increase the average modest donor which all charities could really use in the community and could really communicate, then our sense is, yes, the water level would rise and all boats would go up. More specific measures around larger donors would affect some organizations more than others.

Our clear message here today is that we appreciate what has been done for the last three years and don't stop, don't give up. Let's continue together, looking at ways for the Canadian public... We can enhance charitable giving in every way possible.

• 1625

I think of Patrick's point, around the one measure that has a sunset clause. Let's look together at ways of how we'll measure the effectiveness of those methods. Maybe some methods we'll do with all good intentions together and we'll find out in a few years that they aren't as effective. Then let's move on to others. But for us it's really a continuing approach.

The Chairman: Thank you, Mr. Armour.

Mr. Riis.

Mr. Nelson Riis (Kamloops, NDP): David, you mentioned the voluntary sector in the jobs aspect. This is an interesting concept. I wonder if you could just elaborate on that, and also on ways and means of encouraging that modest contributor. Have you any particular suggestions?

Also, could you expand on the Benson recommendation, please.

Mr. David Armour: Sure.

On the issue of jobs in the voluntary sector, the voluntary sector makes up a fairly large percentage of the workforce of Canada. Certainly if one includes in the voluntary charitable sector hospitals and universities, which are part of the sector, it's a significant part of the workforce. It's around 9% of the workforce.

When we're looking at the kinds of transitions we're seeing in society, the moving away from large manufacturing organizations and the kind of movement that we're seeing in the creation of jobs towards small organizations, you look at 50% of the organizations in the voluntary sector being small, with budgets under $50,000. You look at incredible capacity to increase, in small ways, a large number of jobs. For us, the larger organizations, there are capacities for training, for research. We would like to see anything around technology not be directed specifically to the private sector but be directed towards jobs, the private sector and the voluntary sector. We would think that anything the government could do around job creation should involve us.

In terms of your question around what specific ideas we have, we're working on that. We're going to be coming back to different levels of government with some specific proposals, working with the Coalition of National Voluntary Organizations, community foundations, the Centre for Philanthropy, the United Way. A number of us are grappling with specific proposals to come back and actually make job creation, job development proposals.

But until that happens, I'd say any time you're looking at something in those areas, involve us. This is because, whatever we're reading in terms of Drucker or any of the work that's out on the changing nature of the economy and the workforce, we know that the action is moving towards the voluntary charitable sector. The action is really moving there, as a part of the community where community problems are solved, where people are engaged in making a different life.

We've got lots of examples of how people who are out of work are involved in volunteer work, receive training, receive access to organizations that they wouldn't otherwise receive through the voluntary sector and in fact make themselves much more employable in the new economy. But we may be able to do things more formal than that.

Thanks for the question.

Mr. Arthur Drache: With regard to the Benson comment, it was in the budget speech of June 1971, which was the speech that introduced the 1972 tax reform out of the Carter report. At that time the only real provisions relating to charities were that the donation limit was increased from 10% of income to 20% of income.

They introduced the concept of the registered Canadian amateur athletic association. They were getting ready for the 1976 Olympics and they wanted to find a way to fund amateur sports at the top level in Canada. Amateur sports is not charitable. Promotion of amateur sports is not a charitable activity, so they put in a specific provision.

At the time Mr. Benson said that he recognized that the classic definition of charity, which is what Revenue Canada have used in order to register a charity, was probably badly dated—this was in 1971—and he indicated that the government would take a look at somehow or other bringing that definition into the 1970s, as he put it. Well, we're now in the late 1990s and nothing has happened.

Nothing happened in that regard, but what has happened is that organizations are getting involved in activities that are generally accepted across the board as being socially useful, socially desirable, but that are still not recognized as being charitable.

For instance, you just raised the question of job creation. One of the big areas in the United States has come to be known as community economic development, that is, putting seed money into low-income communities in the hopes of producing private businesses, more jobs and so on for areas that have high levels of unemployment. This is not at the moment recognized by Revenue Canada as being a charitable activity, even though the community at large probably thinks it's a good idea.

• 1630

Without it being a charitable activity, foundations can't give money to organizations to carry on this type of activity. But we have a strange situation. In one case I know of, a major foundation in the United States is pouring $20 million into a project in Winnipeg to work in the area of community economic development, and no Canadian individual or charity can contribute to this project because it's charitable in the States and it's not charitable in Canada.

People talk about the definition of charity. I'd rather get away from the word “charity” and say “tax-advantaged organizations”, because even the terminology is loaded with motives and reaction. But it is a subject that seriously needs to be looked at by the federal level.

The Chairman: Thank you, Mr. Drache.

Mr. Jones.

Mr. Jim Jones (Markham, PC): I only have a couple of questions. First of all, are you having trouble getting volunteers in your organizations and do you feel there's a need to give volunteers tax credits?

I think Arthur raised the issue of the donation of an item—I'm not sure what the item is—to a charitable organization, and after five years if it's not disposed of, the person who donated it is subject to capital gains. Can you clarify that?

Mr. Arthur Drache: If I could deal with the latter issue first, this all comes under the so-called resolution 21. When the draft income tax legislation was released at the end of July there were some modifications. They said if you take private company shares—the ones that had been prohibited as gifts—and give them to a charity, you will only get a deduction when the charity disposes of them, and they must be disposed of within five years of donation of the gift. So that's where the five-year issue comes from.

The general rule under the Income Tax Act is that if you take an asset that has increased in value and donate it, whether it's to your kid, a charity or whatever, there is a deemed disposition of fair market value so there would be a capital gain. The draft legislation says recognition of that gain and the tax will be delayed until the gift has been disposed of by the charity.

But if the charity does not dispose of those shares within the five-year period two things happen. One, you definitely lose your chance at tax relief in respect of that gift, which is clearly Department of Finance's policy. But secondly, the provision of the deemed realization at fair market value then kicks in. The maximum period they give you for delay of this is five years. They try to match it with the gift. If the gift is never given away, the provision kicks in and you end up being treated as though you had disposed of those shares at fair market value.

At the end of the fifth year, if the charity hasn't done away with them I get no deduction for them, but, bingo, I'm now deemed to have disposed of them at fair market value and not at zero, which is what I got. As a result, I have a capital gains tax to boot. That's what it's all about.

The Chairman: Thank you.

Does anybody else want to comment on that? Mr. Johnston followed by Ms. Patten.

Mr. Patrick Johnston: If I can just speak to Mr. Jones' question about volunteerism, I think it is probably fair to say that most charitable and volunteer organizations would say they are having increasing difficulty recruiting people as volunteers. But it's not so much because people aren't interested and willing and wanting to volunteer. As much as anything, it has to do with pressures of time. I think we're all increasingly feeling that life is overwhelming us and you may want to do something and simply not have the time. Given that there are far more two-income families in the workplace, it means that in the past—30, 40 years or 50 years ago—there was one person at home who could devote much more time to volunteerism. That's a significant challenge for us. It's why we're looking at working more closely with employers to encourage employees to do volunteerism during the day, for example.

• 1635

There is a major survey being done next month actually, financed by several federal departments, that will give us the best information on giving and volunteering that we'd had for 10 years in Canada. So if you ask me that question six months from now I'd have more detailed information to provide. I suspect we will find there are fewer people who are volunteering, and in part that's because one of the positions in a lot of charities that's the first to be cut back is the volunteer co-ordinator. When you're in a large organization that has hundreds and hundreds of volunteers, that becomes a fairly sophisticated kind of activity and you often need paid staff to do it.

If you cut those volunteer co-ordinators it means that the number of people you can mobilize to volunteer is probably going to be reduced. We do know that there's been a reduction in volunteer co-ordinators.

Finally, in terms of the issue of a tax credit for engaging in volunteerism, I think it's fair to say there is no consensus in the community about whether or not that's a good idea. There are some people who think it is. There are other people who say that it's not really volunteerism. Volunteerism should be something one does without any expectation of a personal benefit.

The Chairman: Thank you. Ms. Patten.

Ms. Monica Patten: He stole my thunder. I was just going to say exactly what he said. Thank you.

The Chairman: Mr. Armour.

Mr. David Armour: Just to add one other piece, my sense has always been that volunteers volunteer to effect change through health charities or through community organizations or arts organizations. We're still seeing that very strongly, but Patrick certainly hit it right on the head in terms of some of the issues in the changing workforce.

At a recent conference in Winnipeg set up by Volunteer Canada on volunteerism we found a couple of things. One is that volunteer co-ordinators are the first to be cut. Volunteers do want to be well supported, well oriented, well trained, and effectively able to do their job. They want to know that the organization is doing a good job with their time, is accountable to them.

The other thing we're seeing is that in terms of infrastructure at the community level, one of the first organizations to get cut by a number of funders is the volunteer bureau. In fact, the volunteer bureau at a community level is just as important a piece of infrastructure in supporting all the voluntary agencies as is the volunteer co-ordinator within an agency.

We think those things, over the next few years, are going to be really important for us to ensure that infrastructure is there so the people, when they want to volunteer, know where to go and are treated well.

The Chairman: Thank you, Mr. Armour. We'll now move to Ms. Torsney.

Ms. Paddy Torsney (Burlington, Lib.): Thank you. Just to pick up on that last point, I know certainly the United Way in the Hamilton-Burlington area has tapped into the huge resource of retirees, company presidents and what have you, who are out there looking for something to do and have been very involved with the United Way. So it's part of that changing pool of volunteers, and I'm sure they all want to be treated very well when they arrive at the door.

Ms. Patten, we heard in Manitoba, from the Community Foundations representative there, that there were problems in dealing with Revenue Canada in terms of setting up spin-off community foundations. Seed funding was a bit of a challenge, and it was just hard to work with them. I didn't see it in your presentation; is that something you're seeing on a national level or was that something specific to Manitoba?

Ms. Monica Patten: I think that was probably specific to a situation a private foundation may have spoken about, not a community foundation. It's a private foundation that has an interest in supporting the growth of community foundations. So I can't comment on their position beyond that.

Ms. Paddy Torsney: You're absolutely right, it was.

Mr. Strain, I wonder if you could take us through this terrific chart you have. I'm new on the committee and I'm trying to figure out how you get at the $406,250.

Mr. William J. Strain: I'd be more than happy to explain it. This comes back to the points that Arthur was raising and just as a numerical example of exactly that.

• 1640

First of all, on the private company side, this concerns shares of a private company that have a fair value of a million dollars, and they cost the donor half a million dollars. So at the time of gift, if the charity does not sell those securities and turn them into cash within a five-year period, the donor will face a capital gains tax. A donor will be considered to have sold those securities on the open market for $1 million and have a gain of $500,000, 75% of which would be taxable at 50%. That's the tax cost of $187,500.

If we move over to the public company shares, the same capital gain is considered to be realized—the half million dollars—but there are two very important differences here. Because of the measures introduced in the 1997 budget, the capital gains tax will be cut in half in terms of the gifts of public company securities. That will reduce the tax cost from $187,500 to $93,750. In addition to that, the donor will receive a tax credit for the full million dollars of value given. At a 50% tax rate, that will give rise to a tax credit of half a million dollars, offset by the $93,750 in tax that will be payable on the gain, giving rise to the net benefit or the net tax relief to the donor of $406,250.

Ms. Paddy Torsney: Thank you very much. I just have one quick question.

We talked a lot about spreading the donation amongst the smaller donors. Are there any numbers to support that, Mr. Johnston? What would it be in terms of how much money could be raised? Alternatively, what would the cost to the government be?

Mr. Patrick Johnston: To answer your question, Ms. Torsney, I do not think there are detailed studies, but I suspect Finance has done some internal econometric models that would give us some sense of that. It really does very much determine the particular amount of an additional incentive that you provide—whether it is 30%, 35% or 40% of the threshold level. I have not seen—and we have not been able to do any—detailed analysis of the exact impact. In a sense, I suppose that is part of the concern of Finance.

This is really a new measure. As far as we can tell, Canada was probably the only country that was even giving some thought to a measure like this. It seems to be quite unique in the world at this point, so I suppose that's always why there is a bit of reluctance to do something new. Having said that, I don't think there's any doubt that the folks at Finance and Revenue Canada could design a mechanism that would have some protection, just in terms of the total number of people who would benefit and the total impact on the federal treasury.

Ms. Paddy Torsney: Thank you.

The Chairman: Thank you, Mr. Johnston.

We will move to Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you, Mr. Chairman.

Resolution 21 has come up many times with the committee. The issue here is how you get shares and data of private companies into the hands of charities and ultimately liquidate so that we have funds in order to be able to undertake the charitable activities. If you break it down into two pieces, it really is the sale or ultimate disposition of those securities and, secondly, the use of funds and the attendant receipt.

Clearly, resolution 21 came in as a result of real or perceived abuses. I note that in Mr. Johnston's brief, he suggests that other experts have suggested several less intrusive ways. It seems to me the bottom line still has to do with the ultimate disposition of those shares or debts. I am wondering if you can enlighten us as to how we deal with ultimate dispositions. If the business cannot do it itself within a reasonable period of time, how can we reasonably expect that a charity would have a better opportunity to do it?

Mr. Patrick Johnston: If I may, Mr. Chairman, I would like to actually ask Mr. Strain if he would speak to this issue. He is far more of an expert than I.

• 1645

Mr. William J. Strain: Thank you. I'd be pleased to.

I would argue with the premise because I think the biggest potential for the gifts of private company securities is the establishment of endowment funds. By endowment funds I mean the capital that is maintained by the charity to generate a continuing income flow so that there is capital that provides an income base through interest and/or dividends to the charitable organization to fund its activities on an ongoing and permanent basis.

That is where the donation of private company securities was beginning to have a real impact, as more charitable organizations across the country turned their attention to planned giving and endowment giving as opposed to the hand-to-mouth annual campaigns.

The ability of the charity to hold those securities with the assurance that there will be a regular annual flow of dividends or interest is a very valuable thing to have. For example, when we are working with charities and donors on the establishment of gifting programs, we put into place life-insurance-funded arrangements that ensure that upon the death of the donor there are insurance proceeds available to liquidate the investment and pay off the debts or redeem the securities from the charitable organization, but recognizing then, too, that the charity is just as likely, if not more likely, to turn around and put those funds back into another long-term investment to generate that income flow.

I think the endowment funding aspect is the one that's most at risk here.

Mr. Paul Szabo: The other part of it, though, is the valuation—

Mr. William J. Strain: Exactly.

Mr. Paul Szabo: —for the purpose of the issuance of a tax receipt that could be used currently. Is this the primary area of perceived or real abuse?

Mr. William J. Strain: I believe it is. That is why we came forward to the Department of Finance with this four-point valuation process. It really, I think, represents bending over backwards in terms of trying to establish a valuation process for private company securities that would provide the safeguards necessary to ensure that the values ascribed to those securities were fair value, even giving the government a chance on a retrospective basis to look back if events occurred that might mean the value of those securities was undermined, and also taking into account that Revenue Canada does impose capital gains tax on the donor of the securities based on that same fair market value. It works for both purposes.

The Chairman: Mr. Bryden.

Mr. John Bryden (Wentworth—Burlington, Lib.): Thank you, Mr. Chairman. It's a pleasure to be here for this particular topic of the committee.

I want to begin by saying to Mr. Drache that I appreciated his remarks about the need for re-examination of tax-exempt organizations. I can add a little bit to his comments, Mr. Chairman.

The definition of charity exists in legislation from the Elizabethan statute of 1601 and hasn't been upgraded since then, other than by court interpretation. So what Mr. Drache is suggesting, and correct me if I'm wrong, is that we would take a major step forward in reforming the charitable sector and we would be creating a lot of good things simply by redefining what charities are.

I take it that's what you were saying.

Secondly, I heard several comments here about public confidence and the need for charities to gain public confidence and how this translates into increased giving. I think we would all agree with that.

I will say, though, that public confidence when you talk about publicly traded companies or when you talk about government ministries...because of course we're talking now about downloading a lot of services from government ministries to charities. The confidence the public has in publicly traded companies and in government ministries is founded, I think you would all agree, in legislation. The government ministries are subject to the Financial Administration Act and various other statutes and are required to report to parliamentary committees and so on. Publicly traded companies have similar levels of accountability and transparency required by statute.

• 1650

I won't go back over that ground, I think you all know that charities aren't so far under that kind of legislation. There has been an evolution of regulations administered by Revenue Canada, and there's very little legislative foundation that is specific to charities.

So I'd like to ask each one of you for your support. As you know, I'm very interested in charities and I believe a lot of the future of needy Canadians, of this country, actually rests on how charities conduct themselves, because it is an enormous sector and it has an enormous impact on the community.

This is a very powerful committee, and if you were to make a recommendation to this committee that you're all pretty well in agreement on, I think this committee would convey that recommendation.

Sensing, I think, a consensus among you from what you've said, I'd like to read to you, for you to consider, a suggested recommendation that you might feel you could support. Let me just read it, and I can repeat it. I puzzled over this for some time, actually.

I wonder whether you would support this kind of recommendation to this committee: that the government should consider legislation that would modernize the definitions of charities and non-profit organizations—that's Mr. Drache's point—and set up mechanisms of accountability equivalent in effect to those legislated for publicly traded companies and government ministries.

Do you want me to run that by you again? I'm going to poll each one of you.

Mr. Arthur Drache: Let's try that second part again.

Mr. John Bryden: Okay, the second part of the recommendation would be to set up mechanisms of accountability equivalent in effect to those legislated for publicly traded companies and government ministries.

I'll begin with Monica, if you wouldn't mind just saying that you support it in principle or you don't. If you don't support it, then perhaps you could give the reasons why.

The Chairman: Just one second, Ms. Patten.

What exactly are you asking the—

Mr. John Bryden: I'm just asking for their comment on it, whether they would support that type of recommendation in principle.

The Chairman: Do you think it would be fair at this point in time? You've just delivered a four-minute—

Mr. John Bryden: Well, I'll ask them.

Is that fair? If you don't think it's fair...

The Chairman: Quite frankly, Mr. Bryden, I don't think it's fair at this point in time.

Ms. Monica Patten: He asked for my comments.

Mr. John Bryden: Okay, why don't they just comment on it?

The Chairman: Of course you can comment on it. Go ahead.

Mr. David Armour: I'd be happy to comment. First of all, I think that would be almost like reaching a conclusion after you've just started a group to look into the issue.

As members of the Voluntary Sector Roundtable, we've just launched a blue ribbon Canadian group, chaired by Ed Broadbent, to look at the issue of accountability and in fact report on what are the best ways for accountability. That the accountability ought to be the same as the private sector or government is one of the potential conclusions that group would come up with. So I think we'd in fact be short-changing a group we've set up at arm's length to deal with the issue. I think for us to come here and in fact agree that that one answer is one way of going at it would be really out of process with what we've already done.

For us, accountability is critical. It has to do with the participation of volunteers and donors in the sector. But I'd also point out really clearly that all of our public opinion research, and I'm sure yours, shows that the major players in the voluntary sector are at the top of the list in trust, are at the top of the list in terms of Canadians' sense of organizations that are working well for them at the community level, unlike some other parts of society that have great levels of legislation. So it isn't necessarily that higher legislation around accountability leads to higher public trust. We accept the issue of accountability, and that's why we collectively—the Voluntary Sector Roundtable—set up that group.

I really appreciate the work John Bryden is doing in that area and the issues he is calling to the attention of the Canadian public. We're sure that group will want to interview him, hear his concerns, hear his issues, and make that part of their hearings and findings. But I think it would be premature for us to reach the conclusion he's asking us to reach when we've launched just a couple of weeks ago a pretty important group of Canadians to look at that whole issue. But I appreciate your bringing the issue and putting it on the table.

• 1655

The Chairman: Mr. Bryden, do you have a further question?

Mr. John Bryden: Well, yes. Can I not at least get an opinion from anyone at this table about the appropriateness of legislative standards of accountability for non-profit organizations? It applies to every other institution that uses taxpayers' money that was given to the public trust. This applies from publicly treated companies to government ministries, so why should it not apply to charities?

It's not a matter of waiting 18 months for the round table. You, Mr. Armour, stated that Mr. Broadbent was not to look toward legislation, he was to look toward the general issues. You said there was not to be more regulation or more policing. Yet, when it comes to government ministries, MPs police government ministries through committees like this. It's a very useful process for the community. With publicly traded companies, there is again a set of policing mechanisms.

Well, no such thing exists with charities or non-profit organizations. So I'll ask you once again: at least, will you not concede that in principle it would be a good idea to look at legislation covering charities? Define that legislation however you will, but we don't need to wait 18 months for Mr. Broadbent to report, surely. You've been in the business for a long time.

Mr. Clifford Chadderton: First, Mr. Chair, ladies and gentlemen, we've just been through what they call a major audit, which was done by the supply and services department. Their results went over to Revenue Canada. It was a very interesting experience. I'm happy to say that I think we came out of it perhaps squeaky clean, but we are very concerned about the fact that there are too many charities out there.

I've maintained very close relations with the media. I get a lot of questions about this. I think, as Mr. Bryden suggested, that if the government doesn't do something about this fairly soon, then in my view—I've been the director of this charity for more than 50 years—I think we're all going to suffer. I think it's far too easy for a charitable organization today to get a registration.

I think the threat of an audit from Revenue Canada is fine, but in my discussions with the people from Supply and Services who carried out our audit, it's apparent to me that they don't have the staff or the wherewithal to get down and audit some of the smaller charities that I think are giving us all a very bad name.

This is perhaps not too popular, but I've watched again with some concern the idea of having an independent survey carried out or a study done, as proposed, under the direction of Mr. Broadbent. I'm wondering whether the public isn't going to look at a study like that and say, rightly or wrongly, that this is a bit self-serving.

The other thing is that I'm wondering if perhaps this isn't a cop-out for the government. The government has been aware—obviously you get the same press clippings as I do—that there is a very great deal of public concern out there.

I'm not just talking about the Quimby Foundation; I'm talking about the whole field, which includes 27,000 charities out there. There's a lot of public concern about, first, how they got a registration, and second, whether they're being properly monitored and/or audited.

As long as that public concern is out there... I think we're all aware of the possibility of donor fatigue, and something should be done, and fairly shortly, to assure the public that somebody is in control. It has to be the government, because it's the government that gives the right for a charity to exist and give donations.

Just let me finish with one point. You were talking about receipts for the smaller donor. I think I can speak to that with some authority.

• 1700

We get large donors, but our average donor is probably somewhere around $10. If anybody thinks those donors are not interested in getting that income tax receipt, I can tell you—I would have to show you our data bank on it—they are very interested. If something can be done to provide a more reasonable or more beneficial tax break on a smaller donation, then that's going to help all of us.

I will just finalize on the one point. When Mr. Bryden came through with his report, and then when...I won't mention the author, but when the book was published last year... We have something like 27 disabled people in our key tag service in Toronto who take complaints from the public on charities. Our lines were just going mad for about two or three months—I wrote to Mr. Bryden about it—asking, if I give to your organization, is it going to be properly audited? Of course, I don't know what other organizations do, but we have a consolidated financial statement and we send it out immediately.

The concern of the public when this book came out and when Mr. Bryden's report became public frightened me, quite frankly, and also the response we got from the media, phoning me and asking, are you involved in this, can you assure the public that yes, you're running a clean house? There's a very great concern out there in the mind of the public and the media. I think something has to be done and it's the government's job to do it.

The Chairman: Mr. Drache.

Mr. Arthur Drache: There are a couple of points I would like to make on this subject. The first is that the current system is just ridiculous. You have exactly the same oversight whether you're talking about the University of Toronto or you are talking about the church around the corner. They have the same obligations to file, although they have wildly different constituents.

You also have a situation in which a large number of registered charities are in fact overseen by other provincial governments. Look at hospitals, for example; look at universities, and so on and so forth. For instance, if you take a look at the English model, the charities commission, what you find is that all churches are out of the game. They don't look at them, because churches are overseen by church central, so to speak. Hospitals are out. Universities are out. They get rid of all of them, because there are other ways of oversight.

Secondly, we've had the public reporting requirement of T3010 in place for 20 years now, and it's farcical. The point is that nobody who looks at it understands what they are seeing.

On Saturday I read in the Globe and Mail that Maclean's magazine's defence for having misrepresented the charitable disbursements of a number of very big and very reputable charities was that their guys couldn't understand the T3010. Walter Stewart writes a book based on the T3010, gets sued, and his publisher withdraws the book. The point is that public information right now is such that nobody who even looks at it understands it. It's just ridiculous.

My own view, and I have written on this subject, is that we really have to go back to square one on oversight. The first thing to do is to take the whole subject away from Revenue Canada. This is not the appropriate body to be dealing with charities on a national basis. It's a tax collector. You have to understand that's their position: they are tax collectors. What we should be looking at, really, is an independent body similar to the charities commission.

I don't think you're going to be able to fix this thing up—and there are some legitimate problems—through the Income Tax Act. Nor are you going to fix it up by having more Revenue Canada guys going around auditing charities. You need to have a completely different approach.

If we on this side were called on to vote on Mr. Bryden's proposal I would vote no, not because there might not be a grain of reasonableness in the idea of public accountability and so on but because I think in a broad sense it is too general. I think this is a subject that is worthy of some very deep scrutiny by government as to where we should be going with it. But one thing I am absolutely certain of is that Revenue Canada is not the appropriate body to be overseeing charities. It never has been and I don't think it ever will be.

• 1705

The Chairman: Mr. Strain.

Mr. William J. Strain: I'd like to make a couple of comments on the issue.

The first one deals with our position in advising donors. I think it's fair to say that donors certainly demand that charities to which they give are accountable. Accountability is the big issue. I'm very pleased to see the establishment of the task force under Ed Broadbent to look at this issue. Is legislation the answer? I'm certainly not prepared to support that as an answer before the issue has been thoroughly examined.

I would mention to the committee that the regulation of public companies in recent history has not shown to be very effective when we look at the fairly high-profile stock of a gold miner out in the Far East, who will be nameless. Legislation per se is not the answer, but accountability is certainly in demand, both from the donor's perspective and certainly from the public's perspective. I think we should wait and look with interest and encourage a speedy resolution to the task force's review on that issue.

The Chairman: Any further questions?

On behalf of the committee, I would like to express to you our warmest and sincerest gratitude for what has been a very interesting round table. You've raised some fine points about the issues we should be looking at. The point about resolution 21 is going to be looked at quite seriously.

Once again, we'd like to thank you because your group has really contributed historically to the pre-budget consultations and you've seen fruits of your labour appear in the budgets. You can rest assured that you will see many of the points raised today reflected in our report to the Minister of Finance. Thank you very much.

Members, tomorrow morning we'll be meeting in room 237-C from 9 a.m. to noon, then 12.30 p.m. until 2 p.m. for pre-budget consultation. From 3.30 p.m. to 6 p.m. we will move to room 269 West Block, pre-budget consultation. In the same room we will hear from Minister Martin and Minister Pettigrew on the CPP—that's Bill C-2—at 6 p.m.

The meeting is adjourned.